The Pending Challenges in Global Financial Regulation Reform: Liquidity Insurance for Systemic Crises Javier Suarez Abstract: The financial crisis which began in the summer of 2007 has its roots in the under- estimation of systemic risk, in turn due to the absence of a macroprudential approach to the design of financial regulation and macroeconomic policies, as well as the excessively optimistic judgment of the originate-to-distribute model of banking. The ongoing process of reform of the global financial system aims to correct these mistakes. After a brief overview of the challenges ahead, this paper focuses on issues regarding the regulatory treatment of liquidity risk, looking at them through the eyes of the liquidity insurance arrangement proposed in Perotti and Suarez (2009). JEL: E60, G28 Keywords: financial crisis, liquidity risk, systemic risk, financial regulation, liquidity insurance The author is at CEMFI, Madrid, and CEPR. His e-mail is suarez@cemfi.es This paper was prepared for the CEPR-NCAER Conference “India in the G-20: Macroeconomic Policy Coordination, Regulation and Global Governance,” June 1, 2009, New Delhi. The contents of the paper build extensively on joint work with Enrico Perotti (University of Amsterdam).